Are You Eligible for Mortgage Relief?

Check out financialstability.gov for the latest details on Obama's Making Home Affordable Plan. (Is it me or is that a clunky name?)  There is a Q&A and basic self-assessment tools.  (If you are not eligible...well, um...they do offer some possible options for you and your lender.)

Five major points to keep in mind:

1) The major activity here is to convert current loans into fixed 15 to 30 year loans at lower-interest rates.  Refinancing will not reduce the principal amount you owe to the first mortgage holder or any other debt you owe."

2) "[Loan] Servicer participation in the program is voluntary...the government is offering substantial incentives to servicers and investors, and it is expected that most major servicers will participate. Participating servicers will sign a contract with the Treasury...to review every potentially eligible borrower who calls or writes asking to be considered for the program..a list of participating servicers will be available...at www.FinancialStability.gov." Participation is "mandatory for any servicer that accepts future [bailout funds]."

3) Servicers can reduce interest rates to as low as 2% and extend loan terms out as far as 40 years, if necessary.  They can also offer principle forbearance, meaning they will "defer repayment on a portion of the amount you owe until a later time."  They can also forgive part of the loan, but remember, none of this is required on their part.  You could also end up with a balloon payment if they give you a forbearance.

4) You will not be charged any fees for mortgage modification.  So there should be NO COST to you for participating.  You can also receive FREE housing counseling through certain non-profit agencies (1-888-995-HOPE (4673)). You may be required to undergo counseling depending on how much debt you have compared to your income.

5) For every month you make a payment on time, Treasury will pay an incentive that reduces the principal balance on your loan. Over five years the total principal reduction could add up to $5,000.

1.3 million mortgages have been modified since July 2007, with mixed results.  A quick look indicates more than a third of them end up back in default, but some argue that the type of modification matters.  Those that reduce the principal are less likely to default.  But that's not part of Obama's program...pragmatic housing advocates are hoping that the focus on affordability here will also keep default and re-default rates down.  The previous link has some insightful graphs about foreclosure rates nationwide and the success of various mortgage modification schemes.  This article has some vivid examples of who will be helped and who won't, with this telling statement:

"The planners [of Obama's effort] expect 20 percent to 30 percent of people who receive modifications to default again, which is about half the rate for previous loan modifications."

I think they call that staunching the bleeding...

(Photo by TheTruthAbout...)